Issue

State Rankings

07/01/2006

The first category - venture capital - of our state rankings shows few surprises in the first and second slots. California and Massachusetts are hotbeds for venture capital in general, and their nanotech and MEMS performance was predictably strong. The competition for third was close, however, with Texas coming out on top. Each state’s nanotech and MEMS venture capital ranking is based on six individual measures that compare each state’s nanotech and MEMS performance to national funding levels and each state’s overall venture capital activity.

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Small Times has changed its state rankings process this year. Rather than present our entire analysis in a single issue, we will be rolling it out across a number of them. Readers have requested economic development coverage on an ongoing basis. They have asked for a greater level of detail in our rankings analyses. (See the charts on the facing page.) And they have asked for insight into strategies that might help them in various rankings categories.

Providing all that in a single issue would, well, take up an entire issue. So we have decided to publish the rankings as a series, pairing our analyses with coverage of trends in each featured category. This first installment includes the analysis of the venture capital category, one of five categories used to generate the complete rankings.

1. California

The massive level of venture capital investment in California would make one think it would be a sure thing, but our analysis method - which compares dollars invested and number of funding rounds for nanotech and MEMS to funding levels overall - is intended to equalize the states. Nevertheless, California comes out on top on the strength of its support for the field. There were 54 micro/nano funding events for 2005. Though the state hardly needs the help, performance was boosted by a trend toward nano-related solar cell developers and the funding of Miasole and Nanosolar, as well as a large follow-on round for Nanosys. California set the pace in four out of our six measures. Since California has such massive overall VC activity, the measure that tracked nanotech and MEMS as a percentage of overall activity was, not surprisingly, lower than other states.

2. Massachusetts

Like California, Massachusetts has a storied VC history. Also like California, its score was tempered somewhat because its nanotech and MEMS funding levels were just a fraction of its overall VC activity. Venture-backed nanotech and MEMS companies in the state run the gamut from biotech instrument makers to optical networking equipment makers to materials developers. The state also appears to be picking up steam: Its 2005 scores for both dollars invested and number of funding deals outpace its historical scores.

3. Texas

In venture capital, one might put California and Massachusetts in a special category, and then evaluate everyone else. From that perspective, Texas tops the list. Like the states in the number one and two slots, it suffered from the fact that nanotech and MEMS are just a portion of a larger overall VC pie. But its historical support for the sector is very strong, as reflected in the scores that include activity going back a decade. And 2005 was likewise a good year for nanotech and MEMS funding. Molecular Imprints, HelioVolt, Nanotechnologies and other companies all raised rounds, giving Texas high scores for both dollars invested and funding activity levels.

4. Missouri

Missouri benefited significantly from having low overall venture capital activity levels. As a result, it had very high marks in the categories that reflect nanotech and MEMS as a percent of a state’s overall venture funding. However, the overall weighting formula kept this anomaly somewhat in check. The state also benefited from a strong nanobio community, as evidenced by the funding of both Kereos and Chlorogen in 2005, each of which raised significant dollar amounts.

5. Michigan

Michigan’s performance was bolstered by follow-on funding for microfluidics developers HandyLab and Sensicore, as well as others. It was also supported by a strong historical score on the deal activity side. Less overall VC activity in the state also pumped up the state’s score, but not significantly since the categories that use overall state VC funding receive the smallest weighting in Small Times’ final formula.

6. North Carolina

Consistent scores across the board rather than any single standouts put North Carolina in the top-10. Its 2005 performance was supported by biotech and semiconductor applications and its historical funding levels helped tip it into the top-10.

7. Wisconsin

Wisconsin has a long history of commercializing nanotech and MEMS on both the tools and the applications side, especially in life science areas. Funding rounds for NimbleGen and Imago Scientific led the state’s activity in 2005. Historically, the support is there on the dollars side but comes out stronger on the deal activity side.

8. Arizona

Arizona’s semiconductor history helps create the foundation for investment in nanotech and MEMS companies. On the VC side in 2005 there was also participation in medical devices. Historical scores are low but better 2005 scores pushed the state into the top-10 for VC funding.

9. Rhode Island

Rhode Island benefits from being in between the Boston metro and New York metro areas. The state saw nanotech funding go into solar energy and biotech applications in 2005. An anomaly? Perhaps, compared to historical scores. Plus the state got a boost from having low overall VC activity, despite the discount that measure receives.

10. Maryland

Dollar amounts were not terribly high but funding levels were up and historical scores are strong in Maryland. Application areas run the gamut but biotech funding provided the most support for 2005.

- David Forman

Six measures are used to generate the venture capital scores reflected in the map. Individual scores in each measure are reflected below. The first four measures reflect a state’s performance as a percent of U.S. national venture capital activity - measured in dollars and deal activity (number of funding rounds), as well as for the current year and historically. The fifth and sixth measures reflect a state’s performance in nanotech and MEMS relative to that state’s level of venture capital activity overall.

Each measure is equally weighted on a 100-point scale to generate the individual scores. To generate each state’s overall score in venture capital, the six measures are combined using a proprietary weighting formula on a 100-point scale. The formula discounts the categories that compare nanotech and MEMS funding to a state’s overall VC support in order to mitigate the impact of states that have very little VC activity but most or all of it centered on this sector.

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Source: Small Times has a partnership with PricewaterhouseCoopers under which it performs a quarterly analysis and report of the MoneyTree Survey by PWC, Thomson Venture Economics and the National Venture Capital Association for the purposes of tracking funding in nanotech and MEMS. The data used for this analysis was drawn from these reports. The venture capital category is one of five categories that Small Times uses to rank U.S. states. The other categories - research, industry, innovation and work force - will be analyzed in upcoming issues. The cost category included in previous rankings analyses has been absorbed into the other categories.